3 ms·

The whole R vs G doesnt make to much sense to me. Its like comparing speed vs acceleration, and deciding that since speed > acceleration, the bike will move in

The whole R vs G doesnt make to much sense to me. Its like comparing speed vs acceleration, and deciding that since speed > acceleration, the bike will move in a sine pattern. Say we have 2 people who spend all their money every year. $A makes 100K a year. $B has 1M capital. Say the rate of growth is 2%, and that the return on capital is 10%. Year 0, $A makes 100k, $B makes 100k. Year 1, $A makes 102k and $B makes...100K, again. Even if they both save 50% of income, the worker still "wins", although his performance asymptotically trends towards the other's performance as a greater share of income comes from capital. Even though the return is 5x greater than growth ( and growth is part of the return), the person who relies on salary (ie not capital return) benefits and the other does not. Now if $B has 10M, and r=g at 2%, lets recalculate. Year 0 $B makes 200k, $A 100k, then at year 1 $A 102k, $B 200k. But consider, to have the same consumption, $B can save 50% and invest the other 100K. If he did that he would have 102k to spend like $A. Obviously this is a convoluted scenario, but for me, it seems this example punches a huge logical hole in the r vs g thing. Inequality seems to have more to do with personal savings rate than r>g. And note - its WEALTH inequality that rises, not consumption inequality (in that case, does it even matter?). I don't really know what to think about this subject anymore.

xapata 7y ago
You've misunderstood the growth term. It's the growth of the entire economy, not just of wages. If average growth is X and capital grows faster than X (on average), then we can deduce that non-capital growth is slower than X (on average).
H8crilA 7y ago
The point of R is that it also compounds, much like G. Imagine that B has $2M instead of $1M but needs to spend only $100k/year. For B: first year: $100k spending, $100k extra capital gains, $2.1M total capital second year: $102k spending, $108k extra capital gains, $2.208M total capital third year: $104k spending, $117k extra capital gains, $2.325M total capital. And so on. The real argument against Piketty is that people don't stay rich for long, i.e. they don't really get R, but a crazy volatile version of R. There's a large rotation in the top %. Nassim Taleb is quite vocal on the fact that, in the end, pretty much nobody gets market returns. Most people get below average returns, while very very few outperform a lot. This is the same reason why stocks should outperform bonds - they're more risky, and you need more capital to take more risk. Therefore not everyone can afford stocks, therefore stocks are cheaper (from a return point of view).
- H8crilA 7y ago
  Update: I mean stocks are cheaper on the timescales that Piketty uses. It is, obviously, not true that they always outperform within any decade or two.
majormajor 7y ago
> Obviously this is a convoluted scenario, but for me, it seems this example punches a huge logical hole in the r vs g thing. Inequality seems to have more to do with personal savings rate than r>g. And note - its WEALTH inequality that rises, not consumption inequality (in that case, does it even matter?). Consider the person who makes 50K a year. Or the person with 10M capital. It should be increasingly clear that "personal savings rate" alone is going to have an exceptionally hard time to overcome those starting points. Especially if the wealthier people don't dramatically fuck up and spend >100% of income... But even in your initial situation, yes, the difference between wealth inequality and consumption inequality is crucial. Person A has limited options to maintain that lifestyle. Maybe their boss is abusive but they haven't gotten any other job offers that pay the same. Maybe they have to commute 2 hours a day and can't spend time with their kids. And so, then, is the difference in time inequality. You have one person who's working full time to make their living, and other who is not working at all.

xapata 7y ago

You've misunderstood the growth term. It's the growth of the entire economy, not just of wages. If average growth is X and capital grows faster than X (on average), then we can deduce that non-capital growth is slower than X (on average).

H8crilA 7y ago

The point of R is that it also compounds, much like G. Imagine that B has $2M instead of $1M but needs to spend only $100k/year. For B: first year: $100k spending, $100k extra capital gains, $2.1M total capital second year: $102k spending, $108k extra capital gains, $2.208M total capital third year: $104k spending, $117k extra capital gains, $2.325M total capital. And so on. The real argument against Piketty is that people don't stay rich for long, i.e. they don't really get R, but a crazy volatile version of R. There's a large rotation in the top %. Nassim Taleb is quite vocal on the fact that, in the end, pretty much nobody gets market returns. Most people get below average returns, while very very few outperform a lot. This is the same reason why stocks should outperform bonds - they're more risky, and you need more capital to take more risk. Therefore not everyone can afford stocks, therefore stocks are cheaper (from a return point of view).

H8crilA 7y ago
Update: I mean stocks are cheaper on the timescales that Piketty uses. It is, obviously, not true that they always outperform within any decade or two.

majormajor 7y ago

> Obviously this is a convoluted scenario, but for me, it seems this example punches a huge logical hole in the r vs g thing. Inequality seems to have more to do with personal savings rate than r>g. And note - its WEALTH inequality that rises, not consumption inequality (in that case, does it even matter?). Consider the person who makes 50K a year. Or the person with 10M capital. It should be increasingly clear that "personal savings rate" alone is going to have an exceptionally hard time to overcome those starting points. Especially if the wealthier people don't dramatically fuck up and spend >100% of income... But even in your initial situation, yes, the difference between wealth inequality and consumption inequality is crucial. Person A has limited options to maintain that lifestyle. Maybe their boss is abusive but they haven't gotten any other job offers that pay the same. Maybe they have to commute 2 hours a day and can't spend time with their kids. And so, then, is the difference in time inequality. You have one person who's working full time to make their living, and other who is not working at all.